Profits are profits

Start the day with breakfast made by groceries ordered from Blinkit or Zepto or Instamart. Then get ready for the day, wearing clothes bought from Myntra. Travel to the office on an Ola or Uber cab. Along the way, browse Twitter on your phone. Order lunch on Zomato or Swiggy. Pay for it through Paytm or PhonePe. Plan a holiday on MakeMyTrip. Come back home and do some shopping on Flipkart. Order some medicines from 1mg. Browse Carwale or some such site for the new car you want.

What's common amongst all these companies? That they are new age 'digital' businesses? Well, yes, but for me, as an investment analyst, the most remarkable thing is that none of them makes any profit at all. Not just that, some of them are in businesses in which no one in the world has ever made any profit. This raises the question of whether these activities can be called businesses at all. Do you agree with that?

Profits are central to a business; without profits, there is no survival. I've been analysing stocks since 1991, and I find it unbelievable that in 2022, I have had to actually write that previous sentence. It's like a doctor explaining that if someone stops breathing, they will die.

For as long as people have done any kind of business and invested in them, the following statements have been self-evidently true:

• Profits are a must for survival.
• More profits with fewer inputs (capital and other resources) are better.
• Growing profits is better.
• The sooner a business becomes profitable, the better.

However, over the last decade or so, these appear to have become marginal views. Many people, especially in the media and social media noise, think that profits are optional. Till quite recently, this noise was only there in the media, not in the real world. By the real world, I mean the equity markets. However, with the IPOs of companies like Paytm, Zomato and others like them, we now have these profitless zombie stocks in the equity markets too. Until the time they were being sustained by foreign VC money, I didn't really care. However, now they are being sustained by the Indian equity investor.

Until just a few years ago, a business that was making losses, especially large losses, would quickly have to find a way to profitability or shut down. They would have no way to continue operating. Now, in sharp contrast, we have many areas where these loss-lovers have even made it impossible for anyone else to make a profit. Those days when profit-making companies grew their businesses, and loss-makers shut down seem to be over, but maybe not.

I consider this entire activity to basically be a swindle. First, these unsustainable businesses (which are not businesses at all) were created by wildly speculative investments by American VCs, and now, through a clever publicity blitz, the Indian equity investor has been handed this time bomb.

What is the antidote to all this? That's pretty clear. The antidote is our cover story of 'Wealth Insight 2022 issue' and the entire approach to investing that it incorporates. Till two-three years ago, I used to consider our annual Profit 100 to be a routine data-centric exercise. It turned up interesting companies, and both our analysts and our readers learned something new every year. However, it was always self-evident that this was the correct way of studying investments. Now, in this ridiculous new paradigm, we have to try and convince people that the new profitless way of thinking is counter-productive.

Luckily, I think the tide is shifting. As these profitless businesses hit the reality of a world where money is a bit tight, their reality is becoming clear. The important thing for investors, like all of us, is to stay focused on the conventional, tried-and-tested ways of fundamentally guided investments.

Profitability is coming back into fashion.

Suggested read:

Learning from IPOs

Facts change, principles don't